I am a Successor Trustee. What is Fair and Reasonable Compensation?

[pharcyder]

What is the name of your state (only U.S. law)? California

There are several rental properties and cash in the trust. The beneficiaries are my mother and my uncle. I personally manage the rental properties. I was thinking about charging 1% of the value of the trust per year and 5% of the gross rental income. Is this fair? How do you determine what is fair? I will distribute the properties in the trust in 5 years.

My attorney suggested that it's fair to charge 1-2% of the trust's assets annually. I could easily hire a property manager to manage the properties, but I manage them myself. I feel that I should get a management fee of 5% of the rent. Is this fair?

 

[tranquility]

Your ATTORNEY said a percentage of the assets AND a percentage of the gross rents was fair? While I can't tell without the facts, I don't think those amounts are either fair or reasonable. Maybe the percentage on total assets OR the gross rents. But, unless you bring special expertise to the table, you should not be compensated for any extra work in trust management. (Like, property management.)

The first step is what the trust allows. Then, you negotiate. If your amounts are too high, expect to be relieved as trustee or, if the beneficiaries can't, expect to be sued. I wouldn't impose anything other than statutory rates. Everything else should be negotiated.

 

[justalayman]

I personally manage the rental properties.

what have you been receiving to manage the properties? Are you licensed to be able to be a property manager?

 

[pharcyder]

I have not received any compensation for managing the properties. I consulted another attorney and he said that I should not receive compensation for both management and the gross value of the trust. So here is my question

If I chose to charge for managing the trust based on net assets alone, what is a fair percentage rate to charge?

What is the industry standard?

 

[pharcyder]

Here is some more info for you all. Maybe this will help you give me some pretty good advice

The trust has a net income of about 125k per year.

The trust assets are about 1.5 million.

There are 12 separate rental properties in the trust, and about 200k in cash.

I manage everything myself.

What would be reasonable annual compensation?

I have a college degree, and an avid real estate investor myself. However, I am not a realtor.

 

[TrustUser]

have you asked your mother and uncle ?

if the three of you cant come to an agreement, you dont have to stay on as trustee.

i have never liked the percent of trust assets method. to me it is a way for professional companies to make money without doing anything. put the money in the bank and collect their fee.

managing real estate is probably the most time consuming asset. but even then, some properties are many, many more time consuming than others. and value is only a small part of why it may be more time consuming.

managing a property that requires a lot of maintenance or has poor renters, or is in a bad part of town, etc. are all reasons why a property might require more intensive property management.

if you have these special skills, it can make you more valuable, and be more fair to charge more.

i think the 3 of you should sit down, go over all the stuff that needs to be done/managed, and come to an agreement.

 

[TrustUser]

in my part of town, 10% of gross income is somewhat common for property managers.

i dont like this particular type of averaging all that much, either.

properties vary tremendously in how much time is needed.

if you have 10 properties, you might try to sit down and formulate how much time it takes to manage each property, and place a percentage on each one.

at least this way, your mom and uncle can see that you are trying to be fair with them.

 

[justalayman]

I have a college degree, and an avid real estate investor myself. However, I am not a realtor.

I believe you must be licensed to manage property such as you are considering (for pay) in your state. You really need to check into that. California requires licensing for just about everything professional. If you do not have the proper licensing (if required) you could be getting yourself into some big problems.

 

[colourfastt]

I believe you must be licensed to manage property such as you are considering (for pay) in your state. You really need to check into that. California requires licensing for just about everything professional. If you do not have the proper licensing (if required) you could be getting yourself into some big problems.

i would question this as the trustee has legal title to any property in the trust .. and even in Calif. you don't need a license to manage property you own.

 

[StarTrek1701]

Can't speak for California

Your ATTORNEY said a percentage of the assets AND a percentage of the gross rents was fair? While I can't tell without the facts, I don't think those amounts are either fair or reasonable. Maybe the percentage on total assets OR the gross rents. But, unless you bring special expertise to the table, you should not be compensated for any extra work in trust management. (Like, property management.)

The first step is what the trust allows. Then, you negotiate. If your amounts are too high, expect to be relieved as trustee or, if the beneficiaries can't, expect to be sued. I wouldn't impose anything other than statutory rates. Everything else should be negotiated.

In Ohio, it is 3% of the gross. Although, some attorney's will try to get you to sign a contract for more. DON'T DO IT!!!